The metaverse is full of finopportunity

How banks and fintech need to work together in the new digital economy

There’s just one little problem with your “digital transformation” plans: you probably didn’t account for the metaverse. Suddenly, there’s a new era of cyberspace that banks and fintech companies are trying to plan for. It’s clear that a lot of us are still kind of confused at exactly what the metaverse will be and how to navigate the new digital economy that will live inside of it. In fact, when we launched a Pulse Quick Poll surveying technology leaders about their metaverse plans, 66% said they have not started developing a metaverse strategy yet.

What is the metaverse?

Don’t feel bad if you’re still not sure what the metaverse is — or rather, what it will become — most people are still figuring that out. At a high level, we know that it will leverage a mix of augmented reality (AR) and virtual reality (VR) technologies to merge the physical and digital worlds and create a more immersive way to interact with the internet. So far, we’ve seen this concept used for activities ranging from gaming, virtual 3D meetings and concerts. Gaming, in particular, has been a leader in building interactive virtual worlds for many years; the popular virtual community Second Life, for example, launched in 2003.

As I’ve been trying to wrap my head around what the metaverse is, I can’t help but make comparisons to concepts more familiar to me like Sims and Neopets, and if Twitter is any indication, I’m not alone on that front.

if success in the metaverse is gonna be like keeping your Sims alive, i'm ngmi

— Alex Konrad (@alexrkonrad) January 20, 2022

I will only support metaverse if I can hold my dead neopet in my arms

— Rudi Petry (@RudiPetry) October 29, 2021

A new digital economy

Whatever the metaverse actually turns out to be is still TBD, but it’s safe to say that a critical component of it will be its digital economy. Cryptocurrency will continue to play a massive role in this digital economy, but companies across all industries are racing to figure out how to monetize their brand within the mystical metaverse. In addition to paying for things like concerts, people will be able to buy and sell everything from real estate, clothing, artwork, cars, wearables for your metaverse pet (hello Neopets!), and beyond. This presents a huge opportunity for fintech companies to become leaders in the space and help enable all of these digital transactions by creating the metaverse versions of fintech products like BNPL, Venmo, wallets, etc.

Already, we’ve seen virtual goods becoming increasingly popular, so we know that the financial infrastructure is something that will need to be figured out. In December, Nike announced they acquired the digital collectibles company RTFKT Studios to create and sell virtual sneakers. The virtual sneakers cannot be worn in the physical world, and instead are NFTs that the purchaser’s metaverse avatar can wear. I personally have a hard time understanding why anyone would spend real money on virtual shoes that you can never actually put on your feet; but then again, I did spend over $300 on Kim Kardashian: Hollywood in the summer of 2014, so who am I to judge?

For this new digital economy to really scale, people will need to be able to manage their transactions and finances within the metaverse. Fintech payment solutions and open banking platforms will be critical for people to make purchases within the metaverse. As regulators figure out how to monitor and report on these purchases, financial data management systems will need to be reevaluated yet again for this next generation of digital. Meanwhile, many non-fintech companies will most likely look to fintech to help provide the infrastructure to execute their new metaverse business ventures, the next wave of embedded fintech.

What about banks?

As the metaverse brings on a whole new layer to the already booming digital economy led by bitcoin and other cryptocurrencies, it’s no surprise that we will need financial services inside of our new virtual world. Banks are trying to figure out what that means for them, and going into a metaverse branch to sign up for an account is probably not the biggest area of opportunity.

Recently, many banks have started to think about their digital currency and crypto strategies, which is a great place for banks to start when thinking about the metaverse. Banks will need to continue to embrace fintech more than ever and offer products and services that make it easier for their customers to safely spend and manage their money in the new digital economy.

Fraud and identity in the metaverse

Despite banks and fintech companies becoming more strategic in their fraud prevention practices, the industry is seeing a widespread rise in fraud. Why? According to Alloy CEO Tommy Nicholas, fraudsters are well-funded and becoming bolder and more strategic than ever before. This trend will continue into the metaverse and its new fully digital economy. As a result, the types of data and methods we use to prevent fraud and how we store that data will need to evolve.

With all of these digital transactions happening amongst avatars, identity verification will face a new set of challenges. We’ve already seen biometrics get added into identity verification processes through practices such as selfie verification, but fraudsters have figured out ways to bypass this added security measure through 3D masks or taking pictures from social media accounts. In the metaverse, biometrics will need to become more sophisticated by leveraging VR goggles and gloves. These devices are equipped with sensors that can verify someone’s identity using biometric data, such as scanning a retina or identifying people by their body gestures and movement patterns — which are harder to fake.

Could unique portable IDs work?

A unique portable digital ID could become an interesting way to prevent fraud and keep PII data secure. Many leading tech companies (perhaps most notably Microsoft) are working towards a decentralized identity ecosystem. With decentralized identity, we could store digital IDs on the blockchain, similar to how we store unique NFTs today. Each person would own their digital ID card that could be pulled up on their smartphone to verify their identity at any time. These digital IDs would contain identity data, including traditional identity elements such as name, address, email, as well as identity elements derived from the metaverse, such as usernames, avatars, and biometric data. Similar to a driver's license or passport in the physical world, a portable digital ID would be accepted by all businesses and organizations.

Another possibility in a crypto-metaverse, instead of building out full digital IDs, is that leading institutions in the DeFi and KYC sectors could provide an out-of-the-box product for verifying identities. The product would certify that a unique crypto wallet has already been verified by the trusted organization(s), meeting a specific set of regulated protocols, and therefore, you can trust that they are a legitimate customer.

There are still a lot of unknowns as tech companies are hard at work figuring out how to bring people into the metaverse. As we move closer to things like a digital economy and portable digital ID cards, our identity verification will need to become smarter and more efficient. Imagine a world where you could bring your verified identity with you to buy your metaverse mega-yacht, and no one would question if it was really you. That scenario might seem like a dream, but it could be coming sooner than we think.